a 


Railroad  Rates 


By 

HOWARD  ELLIOTT 

11 


Chairman 

Northern  Pacific  Railway  Company 


•8? 


Reprinted  from 

THE  NEW  YORK  COMMERCIAL 
May  8,  1923 


Digitized  by  the  Internet  Archive 
in  2015 


https://archive.org/details/railroadratesOOelli 


RAILROAD  RATES 

By  HOWARD  ELLIOTT 

Chairman,  Northern  Pacific  Railway  Company 


Effect  of  Rail-  In  the  discussion  about  the  railroads  and 
road  Rates  on  the  rates  charged  by  them  there  is  danger 

Business  Liable  that  the  public  may  be  confused  and  its 

to  Misconstrue-  judgment  distorted.  There  is  a tendency 
to  believe  that  the  rates  of  the  railroads 
are  a primary  and  potential  cause  of  success 
or  failure  in  industry  and  agriculture  and  that  by  reducing 
rates,  adverse  economic  conditions,  errors  in  judgment  and 
failures  in  management  on  the  farm,  in  the  factory  and  the 
mine  could  be  corrected  and  avoided. 

Rates  are  important,  but  their  effect  upon  the  success  of 
any  business  enterprise  has  been  magnified  and  there  is 
danger  that  the  theory  of  reducing  rates  in  an  effort  to  im- 
prove business  and  agricultural  conditions  will  do  more  harm 
in  other  directions  than  the  possible  good  to  be  obtained  by 
such  reductions. 


The  Cases  of  E.  C.  Simmons  made  St.  Louis  the  greatest 

Two  Great  hardware  market  and  Marshall  Field  made 

Merchants.  Chicago  the  greatest  dry  goods  market  in 

the  west.  They  sold  their  respective  goods 
all  over  the  United  States,  although  St.  Louis  had  much  bet- 
ter rates  than  Chicago  in  some  directions  and  Chicago  had 
better  rates  than  St.  Louis  in  other  directions.  Brains,  man- 
agement, “push,”  and  resourcefulness  had  much  more  to  do 
with  the  success  of  these  two  great  enterprises  than  the 
freight  rates.  If  Marshall  Field  had  begun  in  St.  Louis 
and  E.  C.  Simmons  had  begun  in  Chicago,  each  would  have 
succeeded  in  his  respective  line  in  just  the  same  way  as  he 
did  regardless  of  rates.  Other  illustrations  could  be  given 
where  efficient  management,  brains  and  energy  brought  suc- 
cess, and  where  the  freight  rate  was  of  secondary 
consideration. 


3 


Service  and  an  adequate  supply  of  a good  quality  of  trans- 
portation at  remunerative  rates,  even  if  higher  than  pre-war 
rates,  are  more  important  to  business  and  agriculture  than 
starvation  rates  with  poor  service  and  insufficient  transpor- 
tation. 

A Railroad  Rate  What  is  a railroad  rate?  There  is  nothing 
Explained.  mysterious  about  it  any  more  than  there  is 

about  the  rate  for  a room  in  a hotel  or  the 
price  of  a ticket  to  the  movies.  A rate  is  the  price  charged 
by  the  greatest  manufacturing  plant  in  the  world — the  rail- 
road system  of  the  United  States — for  what  it  produces  and 
sells;  namely,  transportation  in  enormous  volume  and  in 
almost  countless  forms;  the  transportation  of  a package  of 
pearls  by  express  for  one  thousand  miles;  of  a carload  of 
broken  oyster  shells  for  ten  miles  for  a highway;  of  a com- 
muter twenty  miles  a day  in  and  out  of  a big  city;  of  a trip 
of  a lover  of  his  country  six  thousand  miles  from  the  Atlantic 
to  the  Pacific  and  back;  of  a letter  from  Portland,  Maine, 
to  Los  Angeles,  California;  of  a package  of  butter  by  parcel 
post  from  Princeton,  N.  J.  to  Philadelphia;  of  a car  of  pig 
iron  from  Birmingham  to  Chicago;  or  of  a car  of  cattle  from 
Montana  to  Kansas  City. 

Railroads  Must  The  railroads  must  be  ready  at  all  times 

Be  Ever  Ready  with  a most  varied  assortment  of  trans- 

With  Service.  portation  for  their  customers.  This  trans- 
portation cannot  be  produced  today,  stored, 
and  sold  tomorrow;  if  not  used  when  produced,  it  is  wasted. 
The  railroads  must  be  ready  to  meet  the  maximum  demand 
and  must  be  compensated  for  that  “readiness  to  serve”  by 
the  prices  or  rates  they  charge  for  the  thousands  of  kinds  of 
transportation  that  the  public  uses  every  day,  and  must  have, 
if  our  country  is  to  progress. 

Not  every  one  buys  transportation  directly;  a great  many 
people  do  not  travel  either  for  pleasure  or  business;  never 
send  a package  by  freight,  express  or  parcel  post.  All, 
however,  are  directly  or  indirectly  interested  in  the  rates  or 
prices  at  which  transportation  is  sold. 

Every  one  also  eats  food,  wears  clothes  of  some  kind  and 
nearly  every  one  wears  shoes,  and  all  must  have  food  and 
clothing,  and  yet  the  country  does  not  spend  a large  amount 


of  its  economic  and  political  energy  debating  methods,  of 
regulating  the  rates  and  prices  on  food  and  clothing,  making 
the  production  of  these  two  essentials  more  difficult  and  ex- 
pensive to  the  buyer  by  restrictive  laws,  regulations,  and 
interference  with  management,  as  is  done  in  the  production 
of  transportation. 

Billions  of  Look  at  the  number  of  transactions  that 

Railroad  Trans-  the  manufacturer  of  transportation  has  in 
actions.  a year  and  what  an  enormous  supply  of 

varied  forms  this  great  manufacturing 
plant  of  the  steam  railroads  must  be  ready  to  furnish  to  the 
buyers.  The  best  available  figures  show  the  following  for 
one  year: 


Passengers 
Express  shipments 
Freight  shipments 


1,060,000,000 

190.000. 000  (estimated) 

400.000. 000  (estimated) 


Total  1,650,000,000 

Mail  and  parcel  post 

(from  P.O.  Dept.)  18,000,000,000 


Total  19,650,000,000 

Here  are  nearly  twenty  billion  transactions  with  in- 
dividuals all  involving  transportation,  a number  that  cannot 
be  visualized,  and  these  transactions  increase  with  every  dec- 
ade, for  the  reason  that  American  civilization  demands  a 
larger  amount  of  transportation  per  capita  than  any  other 
nation.  This  almost  inconceivable  amount  and  variety7  of 
transportation  is  manufactured  and  sold  all  over  the  country 
under  varying  conditions — physical,  climatic,  social,  with  all 
the  elements  affecting  cost  and  prices  that  enter  into  the 
manufacture  of  clothing,  shoes,  wheat,  hotel  accommoda- 
tions, moving  picture  shows,  etc.  Wages,  fuel,  taxes,  in- 
terest, loss,  accidents,  etc.,  and  always  in  addition  the  risk 
of  having  a large  amount  of  transportation  capacity  that 
cannot  be  stored  up  and  marketed  and,  therefore,  is  not 
used.  Then  there  must  be  some  profit  in  this  manufacturing 

5 


business  or  it  will  not  grow  to  meet  the  demands  of  the 
buyers  and  they  will  suffer  by  not  having  a supply  of  trans- 
portation when  they  most  need  it.  These  different  elements 
enter  into  the  making  of  prices  at  which  transportation  can 
be  sold — or  the  rates,  as  they  are  called — just  as  they  enter 
into  the  making  of  prices  on  wheat,  corn,  clothing  and  shoes. 
There  is  no  difference.  The  prices  or  rates  are  arrived  at 
by  the  friction  of  commercial  currents  and  the  forces  of  life 
all  over  this  country  and  to  a certain  extent  throughout  the 
entire  world. 

While  there  is  nothing  mysterious  about  rates,  there  are 
many  complications.  Lately  there  have  been  discussions 
about  a scientific  basis  for  rates.  Exactly  what  is  meant  by 
this  is  not  very  clear,  but  some  say  the  term  means  that  there 
shall  be  terminal  charges  for  receiving  and  delivering  the 
freight  and  a haulage  charge  for  the  movement  between  the 
shipping  and  receiving  points.  Also  that  rates  shall  be 
higher  on  high-priced  articles  than  those  on  heavy,  coarse  and 
cheaper  articles,  sometimes  described  as  “basic  commodities” 
with  the  idea  that  prices  or  rates  for  these  latter  can  be 
reduced  materially  and  the  difference  made  up  from  the 
higher-priced  articles. 


The  People  In  a large  way,  these  two  basic  principles 
Recognize  Basic  have  been  recognized  in  the  tariffs  and 
Rate  Principles,  classifications  that  have  developed  since 
1 8 87  when  the  Interstate  Commerce  Law 
was  passed,  but  with  countless  modifications  to  meet  varying 
conditions  in  this  great  country.  These  rates  and  classifi- 
cations have  become  part  of  our  national  life  and  have  re- 
ceived the  approval  of  the  people  through  the  agencies  es- 
tablished by  them;  namely,  the  Interstate  Commerce  Com- 
mission and  the  various  State  Commissions. 

The  United  States  could  never  have  developed  on  a rigid 
mileage  system  of  rates  and  to  apply  any  such  basis  now  to 
industry,  mines,  manufactures,  jobbing,  agriculture  and  the 
great  development  west  of  the  Mississippi  River  with  its 
countless  human  activities,  social  and  educational,  all  created 
in  the  last  fifty  years,  would  disrupt  commercial,  agricultural 
and  social  relations  to  such  an  extent  that  a chaotic  condi- 
tion would  result  and  the  development  of  the  country  would 
be  disturbed  and  checked. 


6 


To  make  material  reductions  on  basic  commodities  and 
obtain  the  revenue  lost  by  such  reduction  through  increasing 
the  rates  on  other  articles  is  an  impossible  task  as  the  follow- 
ing figures  show: 

Facts  Reported  In  1922,  the  Interstate  Commerce  Com- 
By  the  Interstate  mission  reports  that  234,882  miles  of 
Commerce  Com-  Class  I roads  carried  1 ,859,484,476  tons 
mission  in  1922.  0f  revenue  freight.  Of  this  tonnage  7% 
is  an  extreme  estimate  of  those  high  priced 
and  bulky  articles  on  which  it  may  be  possible  to  make  some 
increases  at  this  time  including  all  less  than  carload  ship- 
ments, even  if  thousands  of  communities  and  individuals  can 
be  made  to  see  that  such  adjustment  is  fair  and  the  increases 
receive  the  approval  of  the  Commerce  Commission.  On 
many  railroads  the  percentage  would  be  less  than  7%.  In- 
dustry that  has  heretofore  been  developed  on  the  present 
basis  of  rates,  established  through  commercial  friction  and 
approved  by  State  and  Federal  authorities,  will  naturally  be 
slow  to  assent  to  increases  as  suggested.  The  other  93% 
of  the  tonnage  is  largely,  if  not  entirely,  made  up  of 


Products  of  agriculture  and  animals.  . . 268,000,000 

Products  of  mines 922,000,000 

Products  of  forests 173,000,000 

Heavy  manufactured  articles  and  other 
so-called  “basic  commodities”  on  all 
of  which  it  has  been  suggested  that 
rates  might  be  reduced 366,321,000 

Total 1,729,321,088 


as  against  130,163,388  tons  of  commodities  on  which  it  is 
possible  rates  can  be  increased. 

The  Country  In  discussing  the  rate  revisions,  the  coun- 
Should  Face  try  should  face  the  facts  and  realize  that  it 
*acts*  is  not  possible  to  increase  the  rates  on  7% 

of  the  tonnage,  enough  to  make  up  for 
reductions  in  revenue  on  basic  and  heavy  articles  comprising 
93%  of  the  tonnage.  It  cannot  be  done,  and  such  a plan 

7 


would  make  it  very  difficult  for  those  roads  that  have  been 
built  quite  largely  for  the  development  of  agriculture,  lumber 
and  mining  to  sustain  themselves  and  furnish  the  transporta- 
tion needed,  because  they  could  not  increase  their  revenue 
from  other  articles  sufficient  to  make  up  for  the  losses  in 
handling  the  heavy  tonnage  articles. 

A road  obtaining  its  chief  revenue  from  handling  agri- 
cultural products,  lumber,  coal  and  ore,  could  not  make  up 
the  loss  caused  by  a reduction  of,  say  5%  in  the  rates  on 
those  articles  by  increases  of  any  practicable  per  cent  on  the 
higher  priced  commodities,  because  there  are  not  enough 
of  them  carried  by  that  road.  The  increase  in  rates  on  such 
articles  would  benefit  chiefly  those  roads  that  did  not  suffer 
from  the  reduction  in  rates  on  agricultural  products,  lumber, 
coal  and  ore. 

This  statement  does  not  mean  that  railroad  officers  are 
not  making  and  should  not  continue  to  make  every  effort 
practicable  to  fix  and  adjust  rates  so  as  to  increase  them  on 
higher  priced  and  bulky  commodities,  meeting  existing  com- 
mercial conditions  and  with  due  regard  to  sustaining  the 
various  properties,  so  that  the  transportation  needed  will  be 
produced.  This  process  is  going  on  all  the  time  by  negotia- 
tion between  railroad  officers  and  shippers  and  communities. 

Interstate  Commerce  Commissioner  Lewis 
on  October  26,  1921,  wrote  to  Congress- 
man Sanders  of  Indiana  giving  a list  of  the 
rate  changes  (mostly  reductions)  made 
since  the  general  rate  advance  of  August 
26,  1920,  usually  referred  to  as  Ex  Parte  74.  This  list 
covered  36  pages  of  closely  printed  matter  and  the  Com- 
missioner says — 

“It  would  be  safe  to  say  that  during  the  year  that 
has  passed  since  the  general  increase  following  Ex  Parte 
74  at  least  a million  changes  of  individual  rates  have 
been  filed  with  the  Commission.” 

The  same  kind  of  revision  has  been  going  on  ever  since 
and  is  in  process  today. 


Commissioner 
Lewis  Tells  of  a 
Million  Rate 
Revisions. 


8 


The  Interstate  In  considering  the  general  level  of  rates, 
Commerce  Com-  jt  is  well  to  remember  what  was  said  by 
mission  Reports  (-fog  Bureau  of  Statistics  of  the  Interstate 
Present  Rates  not  Commerce  Commission  about  the  railroad 

Retarding  situation  in  1922. 

Rusmess. 

“On  the  whole,  the  present  railroad 
situation,  from  the  standpoint  of  railroad  finance,  clear- 
ly does  not  on  the  one  hand  warrant  pessimism,  nor  on 
the  other  hand,  at  present,  any  radical  reductions  in 
total  charges  to  the  public.  From  the  standpoint  of  the 
public,  which  is  interested  in  adequacy  of  service  and 
in  the  fairness  of  the  charges,  two  facts  stand  out 
prominently — 

1.  An  enormous  traffic  has  been  handled  in  spite 
of  strike  handicaps. 

2.  The  average  revenue  per  ton  per  mile  is  pretty 
well  in  line  with  the  general  level  of  the  whole- 
sale prices  and  there  is  no  reason  to  believe 
that  the  general  level  of  rates  is  retarding  the 
business  revival.” 

The  business  revival  has  come,  and  in  many  parts  of  the 
country  agricultural  conditions  are  improving.  Since  this 
statement  was  made  by  the  Commerce  Commission,  the  gen- 
eral level  of  prices  as  a whole  has  improved  and  if  there 
were  no  reason  for  reducing  the  general  level  of  railroad 
prices  or  rates  in  1922,  there  is  still  less  reason  today  with 
the  railroads  facing  increased  costs  in  every  direction  over 
those  in  effect  a year  ago. 


Government 
Should  Pay 
More  for  Carry 
ins  Mail. 


The  Government  itself  could  set  a good 
example  and  perhaps  add  $60,000,000  a 
year  to  the  revenue  of  the  railroads  by  in- 
creasing slightly  rates  where  they  could 
easily  be  borne  in  the  charges  for  the  vari- 
ous classes  of  mail  matter  which,  as  a whole,  are  now  carried 
at  a loss  to  both  the  railroad  and  the  Government.  The 
value  of  this  service  to  the  user  of  it  is  much  greater  than 
what  is  paid,  which  is  much  less  than  the  user  can  well 
afford  to  pay. 


9 


Express  and  Mail  Express  rates  apply  to  small  unit  ship- 
Carried  at  a Loss.  ments,  and  these  rates  are  of  a kind  that 
could  and  should  be  increased.  That  mat- 
ter is  now  in  the  hands  of  the  Interstate  Commerce  Com- 
mission. Today,  the  loss  in  handling  mail  and  express  has 
to  be  borne  chiefly  by  the  freight  business. 

In  a general  way,  rates,  like  other  prices,  are  fixed  some- 
where between  the  cost  of  the  service  as  a minimum  and  the 
value  of  the  service  as  a maximum.  No  manufacturer  can 
afford  to  charge  less  for  his  product  than  the  cost  of  produc- 
ing it,  for  such  a policy  would  eventually  result  in  bank- 
ruptcy. The  minimum  point  must,  therefore,  be  the  cost, 
so  far  as  can  be  ascertained,  which,  in  the  cost  of  trans- 
portation, must  include  the  cost  of  handling  the  business, 
moving  the  trains,  a fair  allowance  for  the  maintenance  of 
property  and  equipment,  general  administrative  cost,  and  a 
margin  for  the  payment  of  interest  and  other  capital  charges 
with,  at  the  same  time,  some  profit  to  sustain  credit  and 
attract  new  capital. 

Interstate  It  is  well  to  recall  what  the  Transportation 

Commerce  Com-  Act  says  on  this  subject: 
mission's  Power  “In  the  exercise  of  its  power  to 

as  to  Rates.  prescribe  just  and  reasonable  rates, 

the  Commission  shall  initiate,  modify, 
establish  or  adjust  such  rates  so  that  carriers  as  a whole 
(or  as  a whole  in  each  of  such  rate  groups  or  territories 
as  the  Commission  may  from  time  to  time  designate) 
will,  under  honest,  efficient  and  economical  management 
and  reasonable  expenditures  for  maintenance  of  way, 
structures  and  equipment,  earn  an  aggregate  annual  net 
railway  operating  income  equal,  as  nearly  as  may  be,  to 
a fair  return  upon  the  aggregate  value  of  the  railway 
property  of  such  carriers  held  for  and  used  in  the 
service  of  transportation;  provided,  that  the  Commis- 
sion shall  have  reasonable  latitude  to  modify  or  adjust 
any  particular  rate  which  it  may  find  to  be  unjust  or  un- 
reasonable, and  to  prescribe  different  rates  for  different 
sections  of  the  country.” 

The  return  on  the  railway  property  of  the  country  for 
1922,  based  on  the  Commission’s  tentative  valuation  was 

10 


only  4.14%  and  based  on  the  amount  shown  on  the  carriers’ 
books,  only  3.68%. 

Secretary  Hoover  The  maximum  price  on  any  article  to  be 
is  Right.  sold  is  the  value  to  the  buyer.  Secretary  of 

Commerce  Hoover  testified  before  the 
Interstate  Commerce  Commission  in  January,  1922,  that 
“ ‘what  the  traffic  will  bear’  had  some  economic  back- 
ground.” He  is  right.  This  much  criticized  phrase — 
“what  the  traffic  will  bear,”  describes  a policy  that  within 
limits,  is  based  upon  sound  economic  principles  for  making 
of  all  prices  and  rates.  Sales  of  manufactured  articles  can 
only  be  made  under  prices  that  are  no  higher  than  the  value 
of  the  article  to  the  buyer,  and  no  one  ever  attempts  to  get 
all  that  the  traffic  will  bear,  but  strives  constantly  to  adjust 
prices  so  as  to  develop  territory,  enlarge  business  and  do  the 
maximum  amount.  The  manufacturer  of  transportation  is 
particularly  keen  about  this  and  is  trying  all  the  time  to 
have  rates  or  prices  as  low  as  is  consistent  with  maintaining, 
operating  and  expanding  the  plant.  Between  the  maximum 
of  what  the  traffic  will  bear  and  the  minimum  of  the  bare 
cost  of  production  there  is  a very  wide  margin  where  judg- 
ment must  be  exercised  as  to  what  constitutes  a fair  and 
equitable  rate  and  the  Transportation  Act  has  endeavored  in 
the  paragraph  just  quoted  to  lay  down  a general  principle. 


Interstate  The  people,  in  the  Interstate  Commerce 

Commerce  Com-  Law  of  1887,  and  its  amendments,  and  the 
mission  the  Transportation  Act  of  1920,  laid  down  a 

Umpire.  basis  for  settling  most  of  the  differences 

between  sellers  and  buyers  of  transporta- 
tion and  selected  the  Interstate  Commerce  Commission  as 
Umpire.  Having  selected  the  Umpire,  it  is  not  for  the  best 
interest  of  the  country  to  show  a lack  of  confidence  in  the 
Umpire.  Either  trust  the  Umpire  or  get  a new  one. 

The  Commission  is  devoting  its  time  and  accumulating 
knowledge  in  order  to  safeguard  the  true  interests  of  the 
public,  and  this  should  mean  that  rates  shall  be  sufficient  to 
enable  that  public  to  have  the  necessary  quantity  and  quality 
of  transportation. 

And  yet  today  there  is  more  or  less  effort  under  way  to 
adjust  this  complicated  system  of  rates  or  prices  by  direct 

11 


action  of  Congress,  which  with  the  very  best  intentions  to 
help,  has  not  the  accumulated  knowledge  and  experience 
possessed  by  the  Commerce  Commission  to  pass  upon  the 
justice  of  rates  as  between  commodities,  communities,  and 
between  railroads — the  sellers — and  their  customers — the 
buyers  of  transportation. 

Too  Rigid  Rate  One  danger  in  the  rate  system  today  is  that 
System.  there  is  too  much  rigidity;  rates  cannot  be 

changed  with  reasonable  promptness  to 
meet  changing  conditions.  Again,  if  a rate  is  made  because 
of  some  condition  in  Florida,  it  is  urged  that  necessarily  the 
same  kind  of  rate  be  made  in  Washington,  where  conditions 
may  be  entirely  different.  This  is  not  sound  policy. 

A sound  policy  for  the  railroads  of  the  country  demands 
the  accumulation  of  reserves  in  periods  of  good  business, 
which  may  serve  to  help  out  in  times  of  poor  business.  Such 
a sound  policy  can  be  achieved  only  if  the  revenues  and  ex- 
penses of  the  railroads  are  so  adjusted  that  during  a series 
of  years,  including  both  periods  of  prosperity  and  periods 
of  depression,  there  is  realized  a fair  return  on  the  average 
value  of  railroad  property  used  in  the  public  service.  There 
is  no  other  way  in  which  the  railroads  can  be  in  a position  to 
share  in  periods  of  adversity  without  deferring  maintenance, 
repairs  and  betterments.  It  is  essential,  therefore,  that 
some  way  should  be  found  in  the  process  of  administering 
the  existing  system  of  regulation  to  permit  the  railroads  to 
share  in  the  advantages  of  business  prosperity,  in  order  that 
they  may  be  in  a position  to  share  without  collapse  in  periods 
of  business  adversity.  It  is  to  be  hoped  that  some  day  this 
essential  truth  will  be  recognized  and  put  into  practical  ef- 
fect by  those  who  are  charged  with  the  responsibility  of 
creating  and  administering  governmental  systems  of 
regulation. 

Regulation  has  Considering  the  country  and  the  need  of 
Encroached  on  steady  growth  of  its  transportation  supply, 
Management.  Regulati  on  has  encroached  entirely  too  far 

on  the  field  of  Management  and  by  dividing 
responsibility  and  checking  initiative,  this  policy  has  increased 
costs  and  with  resultant  rates  higher  than  would  have  been 
the  case  if  more  freedom  of  action  had  been  permitted. 

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Better  and  more  prompt  results  for  the  public  could  be 
obtained  if  railroad  managements  familiar  with  local  con- 
ditions— studying  all  phases  of  the  business,  anxious  to  go 
as  far  as  possible  to  meet  the  needs  of  their  customers — were 
allowed  to  make  rates  or  prices  subject  to  investigation  and 
review  by  the  Commission;  these  rates  or  prices  to  be  sus- 
pended only  after  a review  that  would  disclose  these  rates 
to  be  contrary  to  public  policy;  reparation  could  then  be 
ordered  by  the  Commission. 

A Disastrous  Under  the  Government  regulation  of  to- 
Policy.  day,  changes  in  rates  become  a burden  of 

proof  upon  the  carriers  and  these  rates 
are  suspended  until  extensive  hearings  have  been  held  and  a 
decision  is  reached  by  the  Interstate  Commerce  Commission. 
This  situation  has  been  disastrous.  For  instance,  it  was 
obvious  to  everyone  acquainted  with  the  condition  of  trans- 
portation, that  rates  must  be  increased  to  the  carriers  in 
1920  when  they  were  restored  to  private  control.  The 
Government  had  permitted  the  roads  to  become  economically 
unbalanced.  Operating  expenses  had  increased  to  such  an 
extent  that  revenues  w'ere  more  than  absorbed  at  the  very 
time  that  the  roads  came  back  to  private  control.  Under 
these  circumstances,  rate  increases  were  not  possible  until 
the  Interstate  Commerce  Commission  had  held  exhaustive 
hearings.  As  a matter  of  fact,  rate  increases  were  not 
granted  until  August  26,  1920,  when  commodity  prices  had 
already  broken  in  the  market  and  industry  was  becoming 
rapidly  less  and  less  able  to  meet  the  extra  charge.  It  is 
a situation  that  illustrates  a real,  vital  issue  in  the  trans- 
portation business  today;  that  issue  is  how  to  make  rates 
reasonably  flexible  and  quickly  sensitive  to  industrial  and 
market  changes. 

Danger  to  The  Transportation  Act  gives  to  the  Com- 

the  Public  . mission  very  large  powers  to  prevent  Un- 
Through  Unjust  just  Discrimination  and  Extortion,  or 
Rates  Eliminated,  “profiteering”;  it  contains  also  a limitation 
of  aggregate  earnings  so  that  any  danger 
to  the  public  of  unjust  rates  is  eliminated. 

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Remedies  and  In  view  of  these  facts  regarding  the  freight 

Conclusions.  rate  system  of  the  country,  it  seems  fair 

to  conclude  that: 

(1)  Adeqc  te  transportation  to  meet  the  growing  needs 
of  commerce  and  industry,  and  good  credit  for  the  railroads 
so  they  can  oh:;  'n  new  capital  rather  than  lower  rates,  is  the 
condition  t at  si  ould  be  sought. 

(2)  A railroad  rate  is  simply  a price  for  service  and  not 
a thing  of  my.;  ry;  but  the  rate  system  is  made  up  as  a 
result  o'  :o  many  different  factors  that  it  is  a most  delicate 
and  complicated  mechanism. 

(3)  Service,  which  is  the  commodity  sold  hy  railroads, 
in  a most  perishable  commodity  and  unused  equipment  and 
trackage  represents  waste. 

(4)  It  is  impracticable  to  attempt  to  transfer  much  of 
the  rate  burden  from  basic  commodities,  which  make  up  so 
large  a proportion  of  the  total  tonnage,  to  those  higher 
priced  articles,  which  comprise  a relatively  small  percentage 
of  tonnage  and  produce  a small  percentage  of  revenue. 

(5)  Freight  rates  today  are  not  hampering  business  and 
adjustments  are  constantly  being  made  to  secure  the  most 
equitable  rates  possible;  but  the  rigidity  resulting  from  too 
stringent  regulation  and  deferred  changes  prevents  rates 
from  being  sensitive  and  quickly  responsive  to  changing 
economic  conditions. 

(6)  Between  the  maximum  of  “What  the  traffic  will 
bear,”  and  the  minimum  of  the  bare  cost  to  the  carriers  lies  a 
fairly  wide  field  for  the  judgment  and  initiative  of  skilled 
railroad  managers,  subject  to  review  by  the  Umpire — the 
Interstate  Commerce  Commission. 

In  the  preface  to  his  friendly  volume,  “The  United  States 
in  the  Twentieth  Century,”  Mr.  Pierre  Leroy-Beaulieu,  one 
of  the  keenest  foreign  observers  of  conditions  in  the  United 
States,  and  a noted  economist,  uses  this  striking  language: 

“The  essential  condition  to  the  development  of 
energy  is  liberty.  Every  restriction  on  liberty,  with 
however  good  purpose,  diminishes  the  individual  re- 
sponsibility and  initiative.  Yet  we  often  hear  mooted 
in  America,  as  elsewhere,  measures  which  under  the 
pretext  of  correcting  abuses,  would  immeasurably  ex- 
tend the  State’s  field  of  action,  and  reduce  the  liberty 

14 


of  citizens.  It  is  my  earnest  hope  that  the  American 
democracy  will  reject  such  enervating  proposals,  and 
will  remain  true  to  the  virile  and  liberal  traditions  that 
have  ensured  the  United  States  so  wonderful  a growth.” 

The  country  and  its  railroads  were  built  up  by  the  splendid 
energy  and  initiative  of  the  American  Man.  He  was  al- 
lowed more  liberty  in  doing  this  work  than  he  is  today! 
There  is  grave  danger  that  in  an  effort  to  correct  abuses  and 
errors  incident  to  all  human  affairs  harm  is  being  done  to 
development  by  reducing  liberty  of  action.  Leroy-Beaulieu 
is  right. 


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